Bankruptcy court lets Essar keep mineral leases

On Tuesday, a federal bankruptcy judge denied the state of Minnesota’s request to strip Essar Steel Minnesota of mineral leases. This move breathes new life into Essar, though perhaps only temporarily. It’s a significant setback for hopes that Cliffs Natural Resources could quickly take over the project.

The beleaguered Essar, stuck with a half complete taconite plant near Nashwauk, celebrated the judge’s ruling. The company continues to reorganize and seek financing. Essar owes $75 million to both local and major international contractors.

Ultimately, the wishes of the unpaid contractors held sway in the court. Essar, led by new CEO Matthew Stock, successfully convinced the court that it had a plan to raise funds to restart construction.

For the people of the Iron Range, this has the feeling of being more of the same with Essar Steel.

John Myers detailed the court’s finding in his Tuesday story in the Duluth News Tribune:

[Gov. Mark] Dayton, tired of the project’s many delays and failed promises from Essar management, wanted the state leases back now to hand them over to Cliffs Natural Resources, which has promised to use the ore at the site to make direct-reduced iron products.

But other than the state and Cliffs, virtually all other parties are backing SPL, including dozens of Minnesota contractors and vendors that haven’t been paid by Essar and are hoping recoup some of their money.

Attorneys for those unsecured creditors in the bankruptcy, in documents filed in court last week, argued that the leases should stay with the court to give SPL enough time to form a viable plan for the Nashwauk project. Those attorneys also said the leases shouldn’t go back to Minnesota until “there can be an opportunity to learn whether there was any collusion or misconduct between the State of Minnesota and Cliffs that might suggest the DNR filed (its request for the leases) with unclean hands.”

Last summer, state officials and Cliffs Natural Resources leaders held a major community event at the Nashwauk Township Hall asking for support in the coming bankruptcy process. It was clear then that contractors did not trust that a new company would pay them for the old company’s debts.

Some criticized that event as a dog-and-pony show. Now it appears that the event’s brazen rhetoric about getting “everyone” on the Iron Range (including me, mentioned by name!) to support Cliffs in this bankruptcy case is being investigated as collusion.

Despite the favorable ruling, Essar Steel Minnesota will only keep the leases if its new financiers can explain how they plan to finish the project. Lacking that, the bankruptcy court could end up stripping the mineral leases anyway. In that event, Cliffs would remain the presumptive successor.

Barring new evidence, Cliffs is the most likely company to successfully complete this project. Yet their efforts to take over the Essar site quickly seem stuck in the same mud as the unfinished construction at the old Butler Taconite site north of Nashwauk.

Once again, Essar Steel Minnesota gets another turn at the table.

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Comments

Will Cliffs build anything at all or simply be content to have maintained their place as the only option for open market Great Lakes taconite pellets? Cliffs is a good mining company but even they have stated recently they really have no intention of developing the project only extracting the iron ore for sure. Even if they did that it could easily be over a decade away. I hope whoever ultimately has control of the side invests in multiple value added iron products.

The paradox of this whole situation is that *the industry* has such a vital long term interest in developing value-added iron products on the Mesabi. Yet the individual companies seem to have no short term interest (or, probably more accurately, available capital). It almost seems like Cliffs, US Steel, et. al, are content to run their current models down to the nub. Then, if the numbers make sense, they (or successors) would invest in new equipment. But boy, that seems risky for those who would like to see a stable mining industry over the next half century.

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